"How To Grow Profits by 30% or More in 90 Days or Less"  A Six Part Mini-Series:    Lesson 4 Author Steve Pohlit www.stevepohlit.com Copyright 2006 All Rights Reserved.This article may be republished and redistributed without restrictions with this resource box.

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At the end of the today's session you will have 66% of the six week Roadmap To Internet Profits mini-course and more than 80% of what you need to achieve the goal of growing profits by 30% or more in 90 days or less. The measurement of the 90 days starts on day one of the course.

If you have not done the first three assignments, stop and go back and do them. This course is sequential. Each session is built on the base developed in previous sessions. If you don't have the right foundation, the building crumbles.

Based on the completion of the first three assignments you are likely seeing some opportunities. Do not wait for approval from me. If you see costs that are out of line, cut them. If you see excess inventory or inventory shortages, fix. Acton is the key to achieving your profit goals.

Today we will cover the primary steps for increasing sales and gross margin. These principles apply to every business. At the end of today's session you will need to schedule another weekly sales meeting. You will now learn how to run an effective sales meeting and increase sales and gross margin almost immediately. I have worked with numerous companies that have doubled sales in less than one year by using just some of what you will learn here. In fact very few companies use all the tools available to them. Those that do, become elite performers in their industry.

Remember:

A mini course is viewed by some as a teaser for a more comprehensive book, manual, or consulting project. I don’t have a book or manual finished to sell you and while I am always interested evaluating new clients, you will be able to take action to achieve improved business performance immediately with the information in this series. 

Your comments are encouraged and welcomed. I would be pleased to answer your questions once you have completed evaluating all six parts of this series. There is a link for the additional information I will need in preparing to address your questions at the end of the course.  Let’s get started:

Lesson 4:

We start by defining gross margin because there are different components of gross margin depending on who you talk to and what books you read. The only formula I have ever used is net revenue less direct product or service cost.

Let's use an example. Net revenue is important for those companies accepting credit cards because there is a charge for credit card processing that must be included in calculating revenue. Now I don't care if you call it a deduction from gross revenue or a cost of sale. Just make sure it is in your gross margin calculation. The other items in calculating gross margin are product costs and any selling expense linked directly to the sale. For example: you are a clothing retailer and you have a sweater you are selling for $70.00. The credit card cost is $1.40, the product cost is $25.00 and you pay a commission of $2.00 for everyone sold this week. In this example, the gross margin is $70 minus $1.40 minus $2.00 minus $25 or $41.60. Hopefully you understand this point and have an accurate gross margin calculation for the product and services sold by your business.

The Exact Steps To Building Sales and Gross Margin

1. You must know the customers and products that account for 80% of your sales and profit. Please note that this required in-depth analysis of product sales by customer because for some companies they may have a select number of customers that account for a large percentage of the revenue but do not account for the same percentage of profits.

Please Note: There are only three ways to increase sales: a) sell more to existing customers b) increase the transaction size of sales to existing customers and, c) acquire new customers. Also please note that increasing sales does not mean that profits will increase at the same rate or at all. For example, it can cost you more in the first year to acquire a new customer than that customer brings in first year profits. If that is the case you might be asking why would you do that. You might do that if the lifetime value of the customer exeeded the cost of acquiring that customer by enough of a margin to make it worth you time, money and energy.

2. If you did the analysis in step 1 properly, you will likely have noticed products or services that are not contributing as much money to profits as you thought they did. Right now is the time to develop an action plan customer by customer to increase the sales and profitability of those customers. Get on it now. Recently I completed this exercise with a client and directed the sales manager to schedule a meeting with the largest customer. The purpose of the meeting was to negotiate higher prices. The meeting was successful and the client realized an immediate benefit to profits as a result of this work. The effort was then extended to remaining customers and this client went from a break even profit model to earning 7-9% net income before tax on sales volume of approximately $12 million. Does the process work? It works every time.
 
Related Comment: If you are like most retailers and local businesses you don't really know what individual customers buy. For this reason I started the Local Retail Marketing Program. (www.localretailmarketing.com ) The next phase of this is to link it to preferred customer programs that are managed by your point of sale systems so you will know what people are buying and what promotions drive them into your business.
 
3. Acquire new customers is the third step in the sales and profit development process. Now is  the time to finalize your analysis of the cost to acquire a new customer and the life time value of a new customer. Once you know that then you can make a decision as to how much your marketing budget should be for the next 12 months. Note your acquisition cost can be different for each type of marketing program. For example, PPC ads are likely to have a different cost to convert than direct mail. You may use sales staff who travel which will have a different cost. The key is what are you going to do right now to bring in new customers and what is your budgeted cost and conversion rate? This budget vs. actual experience must be monitored weekly.

Key Points:

Each week customer retention, existing customer sales and margin growth and new customer acquisition must be the key items reviewed at the sales meeting. One of the most challenging areas to manage is sales when you have sales and marketing staff because by nature they are people who like to talk in terms of positive generalities. It is important to stay focused on factual results and not stories.

Steve’s Law of Growing Market Share Part 1: If You Use Half The Tools Available For Growing Sales and Gross Margin You Will Be In The Top 20% of Companies In Your Industry As Measured by Annual Sales Growth.

Reminders:

Here is a list to the typical meetings that occur under the "The Profit System" method:

Weekly Cash Flow and Financial Flash
Weekly Sales Meeting
Weekly Operations Meeting
Weekly Meeting on Staffing
Bi-Weekly or Monthly Meeting on Accounts Receivable
Bi-Weekly or Monthly Meeting on Inventory

Depending on your business some meetings that are scheduled for bi-monthly or monthly can be held weekly. In some crisis situations, a meeting on certain issues is scheduled daily. Depending on the industry, other meetings may be necessary. For example: a real estate meeting if your company is building or adding new locations; a meeting on maintenance if your company has a lot of equipment like my trucking company clients; other than liquidity, sales and operations there are no absolutes to The Profit System. You define the meetings based on the key success factors of the business.

A final point on meetings: at every meeting someone must be assigned to take the minutes and issue them within two days of the meeting. The minutes are designed to document the decisions made during the meeting on actions that are to be taken to strengthen business performance. Those actions should be documented, have a person assigned who is accountable for the action and have an agreed upon due date for completion. Then the first thing done at the start of the meeting is to review the minutes of the previous meeting and the status of the implementation of action steps. Hopefully you are beginning to see the built in accountability of The Profit System

Steve’s Law of Growing Market Share Part 2: If you use 90% of the tools available to you for growing market share and profits, you will achieve elite status. If you consistently use those tools each day, week and month, you will maintain elite status and be healthier and happier along the way.

Your Lesson 4 Assignment:

1.   Update your 8 week cash flow and financial flash to add a new week. This is a rolling cash flow statement and you must update it every week.

2.   Distribute the minutes from the previous week's meetings within 24 hours of completing the meetings. The meetings you should be having weekly are cash flow and liquidity and sales. Meetings that generally are scheduled for once every two weeks or possibly monthly depending on your business include: inventory, accounts receivable, staffing, fixed assets, maintenance. Note any meeting can be scheduled to occur more or less frequently depending on the significance of issues affecting the business. There are no exceptions to scheduling the meetings on cash and liquidity and sales every week.

3.   Prepare an organization chart that include all management and supervisory staff. If your company is large include the number of staff below a supervisor. If your company has less than approximately 100 employees, include all names on the organization chart. I typically use Excel to do org charts and use worksheet tabs for additional detail by department.

4.   Prepare an informal rating of all managerial and supervisory staff using an A,B, C rating system. At this point do not complete any evaluation forms or attempt to define A, B, C. Just use instinct for the ratings. Have supervisors do the same for their staff again do not make this a formal process and make it clear that this is not being done in connection with any wage adjustments, formal reviews or pending employee actions. This is part of the direction you are taking based on advice from an expert who is advising your company on how to make more money. Of course that expert is me.

5.   Complete a 12 month forecast of revenue and profits based on current trends and update it is on what you think is possible based on what you now know regarding growing sales and controlling costs.

6.   Review Step 1. Notice it says to update the 8 week cash flow and financial flash. Next week is Week 5 of the course. Going out 8  weeks you will be at the 90 Day mark which is our outside target for increasing profits by 30% or more. Now at this point you need to target sales, gross margin and expenses to  hit that

Next Week: Personnel Development

In summary the goal is to increase profits by 30% or more in 90 days or less. This goal and specific numbers should be written and pasted in your conference room and key offices. 

Shameless Plug Number 2: I have been through this process numerous times. I know how to guide most companies to achieve great results fast. I know where to look for the rugged rocks that can damage your ship. I can get you a fast return on your investment in my fees.

This is Steve Pohlit and my number is 727-587-7871. Email Contact  I’ll meet you at the next lesson which will be in your email in about a week.

Be well and prosper,

Steve Pohlit, Business Consultant
www.stevepohlit.com

PS I have recently developed another mini-course: The Roadmap To Internet Profits. It is a six lesson course also. You are invited to register at www.theprofitexpert.com